10 Reasons to Challenge an Australia/NZ – Pacific FTA (Part 2)

Following on from Part 1 of my previous post, 10 Reasons to Challenge an Australia/NZ – Pacific FTA (Part 1), you can now find the other half listed below. What has really made this issue relevant is Australia and New Zealand’s current pressure on Pacific Island leaders to accept PACER-Plus at the 2009 PI Forum in Cairns.

6) PACER-Plus will give unprecedented rights to foreign corporations

Free trade agreements restrict the ability of governments to regulate the activities of foreign businesses interested in investing, or supplying services, in their countries. PACER-Plus is likely to lead to changes in law in the Pacific that would allow Australian and NZ companies to establish new enterprises with reduced obligations to the countries in which they invest. Under PACER-Plus Pacific governments will face pressure to remove restrictions on foreign investments. They may also no longer be able to regulate investment in a way that creates local employment – by requiring Australian and NZ investors hire local workers and managers, train local workers, partner with local businesses or use local inputs and suppliers. It is likely that Australian and NZ companies will also be able to remove all their profits whenever they like (instead of being required to re-invest into the local community). Free trade agreements can allow businesses to complain about government decisions if they feel they are getting in the way of making profits. In some cases they can even take the government to a form of international court to demand money in compensation. This has previously happened in Bolivia and Argentina, where transnational water companies demanded massive damages from government when their contracts were terminated because price hikes had put water beyond the reach of local people. The companies had also failed to continue to invest in infrastructure. The total claims brought against Argentina were enormous. In 2006 a number of foreign companies had filed law suits in relation measures taken by the Argentinean government that they claimed affected the profitability of their provision of utilities, totaling claims for $16 billion in damages. Argentina lost a case to a subsidiary of the US corporation Enron, and was forced to pay $165 million in damages. Most free trade agreements signed by Australia and NZ include binding investor-state arbitration procedures that allow Australian and NZ companies to sue other governments for damages if they breach certain investment conditions. Pacific governments can expect Australia and NZ will want PACER-Plus to contain similar commitments. Under PACER-Plus, Pacific governments may not be able to introduce new regulations affecting services and investment that are ‘more burdensome than necessary’ – that is, burdensome for foreign businesses. This may include regulations which aim to keep prices low, regulations aimed at sharing the benefits of investment with local landowners, or regulations to ensure services are available to everybody in the community. There is a history of Australian and NZ business behaving in a poor manner in the Pacific. The involvement of the Australian mining company BHP in the massive poisoning of Papua New Guinea’s Fly River system is a well known example. More recently, unscrupulous real estate agents in Vanuatu have flouted that country’s laws to lease indigenous land to Australian investors looking for a retirement home in the islands. It is important Pacific governments maintain the ability to regulate business activities for social, cultural and environmental reasons.

7) PACER-Plus could undermine indigenous rights to land

Indigenous peoples across the Pacific island countries have a distinctive physical and spiritual relationship with their land based on the concept of custodianship. Most Pacific land is owned communally. Free trade agreements can have implications for indigenous rights and land tenure, particularly if they contain provisions to allow foreign ownership of land. At the World Trade Organisation, the European Union has already asked Papua New Guinea and the Solomon Islands to remove restrictions on the ownership of land by foreign companies and investors. During Vanuatu’s initial bid to join the World Trade Organisation, the United States demanded Vanuatu allow private (and foreign) ownership of land. A study on PACER-Plus commissioned by the Pacific Islands Forum Secretariat found that “possibly the most significant conflict between the indigenous peoples of Forum Island Countries and regional trade integration arises in the economic uses of communally held land and resources.” Pacific governments must be aware that any investment chapter in PACER-Plus could undermine indigenous Pacific rights to land. Pressure to allow foreign ownership of land, even through a fixed term lease, could allow foreign business to control that land permanently, if landowners cannot afford to repay the ‘improvements’ such as hotels or apartments that were built on the land. This could take land away from future generations of indigenous people. This is already happening in Vanuatu, where foreign investors are leasing land at low prices, sub-dividing the land for new development and on-selling it at large profits, in the expectation that they can keep it forever.

8.) PACER-Plus could lead to more expensive medicine and education materials

Free trade agreements often include rules regarding ‘intellectual property rights’. These rules protect the ‘rights’ of companies that produce new inventions – meaning only they, or people they licsense, are allowed to sell that invention, and they can sell it for whatever price they like. ‘Inventions’ include things like new medicines and education materials (like books, magazines and online journals). Australia and NZ are likely to want PACER-Plus to include new rules on intellectual property at least as strong as the rules at the World Trade Organisation (WTO). The WTO rules grant pharmaceutical companies 20 years exclusive rights to a patented invention. In countries that have joined the WTO, drug companies can sell their drugs – without any competition, and at high prices, for 20 years – even if that means poor people who need those drugs cannot buy them. In the Pacific, most countries are not members of the WTO and so these rules don’t apply. If they were introduced under PACER-Plus Pacific governments may not be able to import certain cheaper drugs, and would have to buy the expensive ‘protected’ medicine. There are already examples of this in the region. In Fiji, the anti-psychotic drug Olanzapine is a patented drug that is costing the Fiji government considerably more to procure than generic versions that used to be available – due to Fiji’s intellectual property rights commitments at the WTO. It can be expected that moves to patent indigenous remedies would also rise if PACER-Plus contains commitments relating to intellectual property rights. If PACER-Plus contains rules similar to other free trade agreements around the world, it might be more difficult for teachers and students in the Pacific to access education material – by restricting photocopying and sharing of books and journals, or by restricting access to information on the internet with digital ‘locks’ on some information. Other things that are important for development, like herbicides and pesticides, diverse cultural content or new computer hardware and software, may also be more expensive or unavailable if PACER-Plus contains rules on intellectual property. PACER-Plus might even include new rules that restrict the traditional rights of farmers to save, re-use, exchange and sell seeds produced from their harvests!

9) PACER-Plus is not necessary for Pacific countries to benefit from international trade

International trade can be an important way to develop job opportunities and lift people out of poverty. If Pacific governments want to encourage trade by lowering tariffs on imports, opening service sectors to increased competition, or offering incentives to foreign investors, they can do so at any time they like – according to national development priorities, and in consultation with the wider community. However, PACER-Plus would have the effect of forcing Pacific governments into a particular development model, and tying their hands if something went wrong or they wanted to change their policies as circumstances change. In recent years, Pacific governments have had to intervene directly in the market following major natural disasters (as when Samoa paid farmers to replant crops following cyclones in the 1990s), or when the privatisation of a government service has gone wrong (as happened when Tonga decided to re-nationalise elements of its electricity services). PACER-Plus could remove some of this important policy flexibility. There are a number of ways Australia and NZ could help to develop trade in the Pacific – but none of these need to be linked to a potentially harmful free trade agreement. Australia and NZ could provide assistance to Pacific exporters trying to meet their strict quarantine standards, or help to meet key infrastructure challenges (improving roads and access to port facilities), or introduce programmes to improve the marketing of Pacific tourism and niche agricultural exports (in Australia and NZ). Australia and NZ could review the Rules of Origin requirements under SPARTECA so Pacific nations qualify for exporting more finished products to Australia and NZ duty-free. Australia could also review the impact of Australian non-tariff barriers to trade. Any such review could look at the public health restrictions on imports of commercial quantities of kava to Australia, which have damaged a key export opportunity for countries like Vanuatu and Fiji. Australia and NZ can also continue to open their labour markets to unskilled and semi-skilled Pacific workers under temporary labour mobility schemes (as they have done under the recognised Seasonal Employers scheme in NZ, and the Pacific Seasonal Worker Pilot Scheme in Australia). Again, this shouldn’t be done in the context of a regional free trade deal.

10) PACER-Plus offers a lot more for Australia and NZ than it does for the Pacific

A free trade agreement with the Pacific has long been a dream of Australian and NZ trade officials. Australia and NZ are interested in securing new access to Pacific markets for their exporters, service suppliers and potential new investors. Businesses in Australia and NZ want to see tariffs reduced on their exports to the Pacific, and changes to laws in the region to allow corporations to establish new enterprises (and take profits home) with very few obligations to the countries in which they invest. Australian and NZ exports to the region are already worth $AUD5 billion each year, and a free trade agreement could add to that value considerably. A recent study commissioned by the Australian aid agency (AusAID) found that PACER-Plus could increase trade in the region by up to 30 per cent8. However, that study did not say in which direction that increase in trade would be. As Pacific countries already have ‘duty-free and quota-free’ access to Australia and NZ markets for most of their products, it seems that nearly all of this increase would be an increase in Australian and NZ exports to the Pacific (at the same time as Pacific industries close and Pacific governments lose much needed revenue). Some argue that PACER-Plus will lead to lower prices for consumers in the region, but experience suggests that in many cases exporters and distributers (‘middle men’) tend to increase their prices almost back to the same level after tariffs are removed, and fail to pass on the benefits to consumers. Certainly this has happened before in the Pacific. Following tariff reductions on consumer items in Vanuatu, a report commissioned by the United Nations Development Programme found that a fall in retail prices was not evident, attributing this to “domestic market imperfections and high cost inter-island transportation”. Consumers may also face a higher sales tax that is likely to cancel out much of any possible price decreases in any case. A free trade agreement with Australia and NZ offers many gains for business in those countries, and very few (if any) gains for development in the Pacific – as well as posing very serious risks.